Core & Main and Howard Hughes have been highlighted as Zacks Bull and Bear of the Day

For Immediate Release

Chicago, IL – April 25, 2024 – Zacks Equity Research shares Core & Main CNM as the Bull of the Day and Howard Hughes Holdings HHH as the Bear of the Day. In addition, Zacks Equity Research provides analysis on PACCAR PCAR and Lear Corp. LEA.

Here is a synopsis of all four stocks:

Bull of the Day:

Core & Main, a Zacks Rank #1 (Strong Buy), is an industrial distributor of wastewater, storm drainage, fire protection products, and related services. The company provides its products to municipalities, private water companies, and professional contractors.

CNM stock is benefitting from underlying momentum in the industrial sector and hit an all-time high earlier this month. Shares are displaying relative strength as buying pressure accumulates in this market leader.

The company is part of the Zacks Waste Removal Services industry group, which currently ranks in the top 38% out of more than 250 Zacks Ranked Industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months. This group is widely outperforming the market so far in 2024.

Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.

It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.

Company Description

Based out of St. Louis, Core & Main serves the municipal, non-residential, and residential end markets in the United States. Its water portfolio includes various products such as pipes, valves, hydrants, and fittings. The company’s storm drainage offering is composed of corrugated piping systems, retention basins, and inline drains.

In addition, Core & Main’s fire protection products include sprinkler heads and devices, smart meters, and other accessories. The industrial giant also offers maintenance, installation, repair, replacement, and construction of wastewater, storm drainage, and fire protection infrastructure.

Earnings Trends and Future Estimates

Core & Main has established an impressive earnings history since its IPO in 2021. The company met or exceeded earnings estimates in three of the last four quarters, delivering a trailing four-quarter average earnings surprise of 1.46%. Consistently beating earnings estimates is a recipe for success.

Analysts covering CNM are in agreement and have been raising their earnings estimates lately. For the current fiscal year, analysts bumped up earnings estimates by 5.28% in the past 60 days. The Zacks Consensus Estimate now stands at $2.59/share, reflecting potential growth of 20.5% relative to the prior year. Revenues are projected to rise 12.6% to $7.54 billion.

Let’s Get Technical

CNM shares have more than doubled in price over the last year. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.

Notice how both the 50-day (blue line) and 200-day (red line) moving averages are sloping up. The stock has been making a series of 52-week highs and recently surpassed its former all-time high. With both strong fundamental and technical indicators, Core & Main is poised to continue its outperformance.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Core & Main has recently witnessed positive revisions. As long as this trend remains intact (and CNM continues to deliver earnings beats), the stock will likely continue its bullish run this year.

Bottom Line

Core & Main is ranked favorably by our Zacks Style Scores, with a best-in-class ‘A’ rating in our Growth category and a ‘B’ rating in our Value category. This indicates that CNM stock is likely to continue to move higher based on a favorable combination of earnings and sales growth as well as relative undervaluation.

Backed by a leading industry group and impressive history of earnings beats, it’s not difficult to see why Core & Main stock is a compelling investment. An appealing technical trend along with robust fundamentals paint a bullish picture moving forward.

Bear of the Day:

Howard Hughes Holdings, a Zacks Rank #5 (Strong Sell), operates as a real estate development company in the United States. The company’s operating base consists of developed and/or acquired retail, office, and multi-family properties along with other retail investments.

The diversified real estate firm develops, sells, and leases residential and commercial land designated for long-term community develop projects. Howard Hughes Holdings is also involved in landlord operations, managed businesses, and events and sponsorship services of its retail and entertainment properties.

Founded in 2010, Woodlands-based Howard Hughes Holdings operates in Texas, Nevada, Arizona, Maryland, Hawaii, and New York. As we’ll see, future earnings estimates have been plunging lately, providing a grim backdrop for this real estate company.

The Zacks Rundown

Howard Hughes Holdings has been severely underperforming the market over the past year. The downtrend has continued in 2024 as HHH stock hits a series of 52-week lows. The company represents a compelling short opportunity as general market volatility begins to rise.

HHH is part of the Zacks Real Estate – Development industry group, which currently ranks in the bottom 14% out of approximately 250 industries. Because this industry is ranked in the bottom half of all Zacks Ranked Industries, we expect it to underperform the market over the next 3 to 6 months. This industry has widely underperformed the market so far in 2024.

Candidates in the bottom half of industry groups can often represent potential short candidates. While individual stocks have the ability to outperform even when included in weak industries, their industry association serves as a headwind for any potential rallies. Howard Hughes Holdings continues to fight an uphill battle and the stock is confirming this notion, lagging the general market by a wide margin.

Recent Earnings and Deteriorating Forecasts

The real estate developer missed the earnings mark in three of the past four quarters. The company has delivered a trailing four-quarter average earnings miss of -194.19%. Consistently falling short of earnings estimates is a recipe for underperformance.

Analysts covering HHH decreased their earnings estimates recently. Looking at the latest quarter, Q1 estimates have been slashed by 115.84% in the past 60 days. The Zacks Consensus Estimate sits at -$0.7/share, reflecting a 52.2% drop from the year-ago period. Howard Hughes is set to report the quarterly results on May 8^th.

Technical Outlook

Howard Hughes has been steadily falling since late last year and has now established a well-defined downtrend. Notice how both the 50-day (blue line) and 200-day (red line) moving averages are sloping down. Shares have declined nearly 25% this year alone.

HHH stock has also experienced the dreaded death cross, whereby its 50-day moving average crosses below its 200-day moving average. Howard Hughes Holdings would have to make a serious move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. Shares remain in negative territory this year while the general market has eclipsed its former highs.

Despite the conspicuous signs of underperformance, HHH shares remain relatively overvalued, irrespective of the metric used:

Final Thoughts

A deteriorating fundamental and technical backdrop show that this stock is not set to develop new highs anytime soon. The fact that HHH is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns.

A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend. Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of an overvalued HHH until the situation shows major signs of improvement.

Additional content:

Auto Stocks Poised to Outpace Q1 Earnings Estimates

The first-quarter earnings season for the Auto-Tires-Trucks sector has shifted to high gear this week. So far, four S&P 500 sector components — Tesla, Genuine Parts, General Motors, LKQ Corp— have reported quarterly numbers. Results have been mixed so far. While Tesla and LKQ missed earnings estimates, General Motors and Genuine Parts surpassed the same.

Per the Earnings Trend report dated Apr 17, the auto sector’s earnings for the first quarter of 2024 are expected to decline 29.5% on a year-over-year basis. Revenues are estimated to rise 0.9% year over year.

With a host of companies left to release quarterly results, we have identified — with the help of the Zacks Stock Screener — a couple auto players, which are positioned to outshine the Zacks Consensus Estimate in first-quarter earnings. These include PACCAR and Lear Corp.. Before we discuss the companies, let’s take a look at the factors shaping the quarterly performance of automotive companies.

Things to Note

U.S. vehicle sales grew 5.1% to 3.75 million units in the first quarter of 2024, per GlobalData. March’s seasonally adjusted annual rate is anticipated to reach 15.5 million units, compared with 15.02 million in March 2023. Per J.D. Power and GlobalData, in March, light-vehicle retail inventory reached 1.7 million, up 4.2% from February 2024 and 39% from March 2023. Total inventory surpassed 2.5 million for the first time since 2021. Per J.D. Power, average transaction prices of vehicles in March declined 3.6% year over year to $44,186.

The generous incentives offered by automakers are expected to have played a crucial role in boosting retail deliveries in the first quarter of 2024, offsetting the impact of high interest rates. However, discounts might have impacted margins. Also, commodity costs, forex woes, tough labor market and logistical challenges are likely to have played spoilsport. Moreover, high operating expenses, including R&D, to develop technologically advanced products to adapt to the changing dynamics of the auto industry are expected to have dented earnings.

Picking Potential Winners

While it is not possible to be sure about which companies are well positioned to beat earnings estimates, our proprietary methodology — Earnings ESP — makes it relatively simple. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. Earnings ESP shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Our research shows that for stocks with the abovementioned combination, the chances of an earnings beat are as high as 70%.

Our Choices

PACCAR: It is one of the leading names in the trucking business, with reputed brands like Kenworth, Peterbilt and DAF. We expect first-quarter 2024 pretax profit for the Truck segment to be $1 billion, up from $894.3 million reported in the year-ago period. We expect revenues from the Financial Services segment to be around $470.4 million, implying a rise of 11% year over year.

Continued growth in the aftermarket parts due to the widespread adoption of its proprietary MX engine bodes well. High truck utilization and increased average fleet age are expected to have positively impacted Parts’ results in the first quarter of 2024. Our projection for first-quarter revenues from the Parts segment is pegged at $1.69 billion, indicating a rise of 4.5% year over year. The estimate for pretax profit of the segment is pegged at $457.2 million, suggesting a rise from $438.6 million. Improved performance across segments is likely to have bolstered the company’s performance in the to-be-reported quarter.

PACCAR has an Earnings ESP of +1.25% and sports a Zacks Rank #1. The company is scheduled to release first-quarter results on Apr 30. The Zacks Consensus Estimate for PCAR’s to-be-reported quarter’s earnings and revenues is pegged at $2.17 per share and $8.08 billion, respectively. The EPS estimate for the first quarter has moved up by 2 cents in the past 30 days. PACCAR surpassed earnings estimates in the trailing four quarters, with the average surprise being 17.07%.

Lear: The Kongsberg acquisition has strengthened Lear’s Seating business and has added innovative technologies to differentiate its product offerings. The acquisition of Xevo has enhanced Lear’s capabilities in software, services and data analytics, in turn, bolstering its market position in connectivity. The buyout of IGB has expanded Lear’s product offerings in the growing thermal comfort solutions market. These buyouts are expected to buoy Lear’s revenues in the quarter-to-be-reported.

Rising consumer demand for vehicle content— requiring signal, data and power management— and increasing electrification efforts by the company bode well for the upcoming results. Frequent business wins because of innovative product launches like Battery Disconnect Units and Intercell Connect Boards are likely to boost revenues. Also, the company’s Lear Forward plan is expected to generate cost savings. A sales backlog of around $2.8 billion through 2024-2026 augurs well for growth.

Lear has an Earnings ESP of +0.55% and carries a Zacks Rank #3. The company is scheduled to release first-quarter results on Apr 30. The Zacks Consensus Estimate for LEA for the to-be-reported quarter’s earnings and revenues is pegged at $3.04 per share and $5.99 billion, respectively. The EPS and revenue estimates imply year-over-year growth of 9.3% and 2.5%, respectively. Lear surpassed earnings estimates in three of the trailing four quarters and missed once, with the average surprise being 6.11%.

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